Disrupting Blockchain

In a lively discussion about blockchain and disruption, once again the question was raised “what will disrupt blockchain?”, and the answer to that question is as simple as it is straightforward. Blockchain itself will disrupt blockchain.

As carrier for disruption of many industries and applications, blockchain has become a catalyst for change and transformation. Although not yet in full scale implementation besides some successful crypto-currencies, the potential is clearly identified. Unleashing that potential into real-life and large-scale applications of blockchain based platforms will quickly turn the power of disruption on blockchain itself.

The prime USP’s of blockchain based technology are decentralization and encryption, creating a trustless environment with security-by-design. As soon as we take a closer look under the hood of this “new” technology, we quickly identify that there isn’t that much new technology involved. Analyzing the concept of decentralization beyond the label, it is true that there isn’t a central trust- or owner-body for the data involved but there are other levels of centralized control which make it significantly less decentralized as it appears. And then there is the matter of resources required to build and operate a blockchain based platform, especially when the scale goes beyond the miniature implementations we have seen so far!

Those are however all problems and challenges “underneath the hood” of the concept, and the evolution of blockchain and its technology will eventually solve these challenges. Nonetheless there is a much bigger challenge to be addressed, and experts recognize that there might not be a short term solution: legislation and compliance.

Before blockchain based technologies can become mainstream large-scale and real-life applications beyond cryptocurrencies, blockchain needs to be disrupted!

Organization

Blockchain based technology offers in theory a decentralized trustless system which is not directly controlled by an organization or a government. In short, the power of control over the system and its content is decentralized.

In reality however, blockchain enabled platforms are under centralized control at an entirely different level. For example, the mysterious founder of bitcoin Satoshi Nakamoto, whomever he or she may be, determined the design and implementation of Bitcoin, and neither the distributed ledger nor the peer-to-peer protocols can change that. Proof of work, proof of stake, a hybrid or any of the other consensus protocols, are decisions made by the originator of the blockchain enabled platform.

In a hard fork of Bitcoin Cash in Bitcoin Cash ABC and Bitcoin Cash SV, not much unlike the Linux kernel fork and related disputes between Alan Cox and Linus Torvalds, the unity and consensus on future development of Bitcoin Cash has been broken permanently and there is likely more to come. This fork demonstrates clearly that there are still groups of people and stakeholders determining the future of blockchain and crypto currency platforms, as much as it demonstrates that their interests can make or break a platform in the same way as the stakeholders of a so called centralized platform can.

What the advocates of decentralization and their believers do is present the distributed ledger and peer-to-peer aspects of blockchain as a unique feature of a decentralized platform. And they do that knowing (or at least we should hope that they understand what blockchain enabled platforms are) very well that blockchain platforms are not really decentralized. Not from a technology perspective and not from a control perspective. Comparing blockchain with centralized platforms, and emphasizing the alleged decentralization benefits of blockchain in its current form, is as valuable as comparing apples with apples. They might taste different, they might look different, but they are still apples.

After an initial phase of skepticism and reluctance, big players are entering the market and develop blockchain enabled platforms. They design and develop the platforms, make the critical decisions about the protocols, structures and fees. An essential ingredient of the strategy of large technology providers is to protect their IP with patents, and there are currently already well over 2,000 blockchain related patents, further breaking down the decentralization myths around blockchain.

A further nail in the coffin of the myths around the decentralization of blockchain enabled platforms is the rise of private blockchain platforms and platforms based on pre-minded blocks by the originator. Decentralized? Not really!

Technology

Even when blockchain and cryptocurrencies are a thing of this decade and their real breakthrough debut still hasn’t reached the first lustrum, the technology which enables blockchain platforms is decades old. To be more precise, the concepts and maiden implementations originate from the 70’s and 80’s. Public key encryption, cryptographic hashes, Merkle trees, peer to peer distribution, and yes even the famous distributed ledger technology and consensus protocols find their roots between 30 and 40 years ago. For example as references and proof-of-concept in the section “Challenges and opportunities to create digitized traceable transparency in production and supply chains” of my dissertation in 1987.

What is rather unfortunate, is that additional and significantly improved concepts, like for example selective peer-to-peer distribution and asynchronous Merkle trees, which are also decades old and would have eliminated several major weaknesses of today’s blockchain and cryptocurrency platforms, didn’t make it to the current implementations (yet)!

Taking components of existing technology and reassemble them into a new application is by itself a form of low-risk disruption, and as such not a bad idea. Given the many weaknesses and restrictions of blockchain technology, it is high time to add true innovation to the mix. When we however review which devastating impact today’s blockchain and especially cryptocurrencies have on our battered environment, we can only conclude that these innovations are long overdue!

Before blockchain enabled technology can leave the stage of the miniature implementations it is in today, and become a reliable mainstream and widespread technology, the technology which determines the speed of transactions and its ability to process high volumes of transactions need to significantly improve. Drastically improve, as a comparison of payment platforms clearly demonstrates for example. In this context it is important to understand that payment platforms like VISA can scale up rapidly when needed and on the other hand, Bitcoin already reached its technology defined physical limitations.

There is good news on the horizon. New platforms and major players which are entering the market are stepping away from the first blockchain concepts and actively design solutions which can do significantly more than what we see today. A very promising example is Credits.com, definitely worth checking to see what blockchain can actually achieve in volume and speed.

Resources

It should be well known by now which negative impact the mining of proof-of-work based blockchain platforms and cryptocurrencies have due to their energy consumption. Not just for the systems themselves, also for the network infrastructure and let us not forget the electricity consumption to cool the systems which are generating heat.

In short, these combined have done nothing less than adding a country the size of The Netherlands to the global electricity consumption for the sake of profit, in a day and age where we all and without exception should focus on reducing carbon exhaust to save our planet from total destruction. This is unsustainable and should have been addressed long before it came to this unacceptable level of exploitation of the environment!

There is more than the extreme energy consumption. To be able to make a profit on the mining of new coins, hundreds of thousands of not millions of powerful systems have been build and installed. Systems and infrastructure is build using rare metals. Most systems and their components include aluminum, antimony, arsenic, barium, beryllium, cadmium, chromium, cobalt, copper, gallium, gold, iron, lead, manganese, mercury, palladium, platinum, selenium, silver, and zinc. Not only are most of these metals rare, the mining process itself is causing serious damage to the environment.

And this is where it becomes really nasty, metals like cobalt are mined using child labor!

At this point it is important to understand that proof-of-work itself is not the real problem. The problem is the proof-of-work based consensus protocols in which incentives on brute-forcing en masse invite the block/coin mining farms to cause significant damages to our environment. There are better technical alternatives available since several decades which can achieve the same level of encryptions and security, without drastically decreasing the lifespan of our planet. These would however offer significantly lower incentives and therefor attract less miners. Once again, it all evolves around the profitability without reflection of the impact.

Besides the energy hungry consensus protocols based on proof-of-work and some of the other variations, there is the impact of peer-to-peer based distributed ledger which would enforce a large scale blockchain implementation to distribute the entire strain of data in the blockchain over all active nodes in the network, including the related hashes to previous data.

Legislation and compliance

Among the top priorities of (almost) every government is its ability to collect taxes, which is reflected in a significant part of the legislation. At a global and local level, there is also strict regulation on Anti Money Laundering (AML) and Terror Financing, which for example place strict responsibility and even liability on executing processes known as Know Your Customer (KYC) and Know Your Business (KYB). The highly praised anonymity of blockchain and cryptocurrencies are a preprogrammed conflict with these requirements, and it will most likely not take long until regulations will kick in with restrictions.

The ultimate goal of blockchain is as Bill Tai, a profound advocate of everything blockchain and cryptocurrency, puts it: “So we are right now at that point where assets because of the blockchain can be connected to a gigantic network so every single asset in the hands of every single person can broadcast itself to find its buyer or seller.”

Before this can become a reality, legislation will need to be adapted to support, recognize and even accept such environment. And that will take many years, as we can see for example with the timeline of GDPR, which in its essence is significantly less complicated than the legislative adaption which will be required to create blockchain AML, KYC, KYB, TF and asset registration compliancy.

Disrupted Blockchain 2.0

Blockchain will not eliminate fraud or cure diseases, and cryptocurrencies in its current form will only exist until governments have found ways to control it like fiat currencies.

What will come soon is a disrupted blockchain, disrupted by blockchain itself. High volumes enabled by new and efficient consensus protocols. Drastically reduced energy consumption by improved data transmission protocols and an overdue farewell to proof-of-work. Increased security and data validation algorithms and protocols which no longer depend solely on the size of the network. Significantly improved scalability through consolidated, broadcasted and clustered ledgers.

With big players entering the market, both as solution provider and as integrator, the share of private blockchain versus public blockchain will tilt, and private blockchain platforms will form the majority within the next 5 years. These major players in combination with the growing amount of private blockchain platforms will also lead to reducing share of open source in the blockchain sphere.

Integration of blockchain and systems will finally become a priority, and blockchain technology will be surrounded by API’s and data mapping solutions. Bluntly said, blockchain will go a similar path as SQL did. Once a true innovation with enormous emphasis on the potential, followed by being a must-know tech, and now “just a tool” which is gradually being replaced by better, faster and more efficient tools and methods.

Bitcoin et al? The mix of hard to trace and unsustainable energy consumption will eventually lead to countries starting to prohibit mining or even usage as payment and asset/wealth storage. New and better platforms will cause declining interest in this Crypto 1.0 currencies. As advocate of SDG’s, that day can’t come fast enough for me!

About the author

Dr. ir Johannes Drooghaag, CEO and founder of Spearhead Management, is an established executive, consultant, coach, author and keynote speaker, who approaches new technology with open arms and a critical view. As certified and experienced RED TEAM trainer, he brings being the Devil's Advocate to a new level of constructive analyses and solution finding. Dr. ir Johannes Drooghaag is active in the fields of Leadership, Cyber Security, Blockchain, Industry 4.0, Artificial Intelligence and Agile Business Management. Promoted in Applied Information Technology, Manufacturing and Operations Management, and over 30 years of hands-on experience make Dr. Johannes Drooghaag a pragmatic leader, consultant and speaker.